Felicis Ventures Raises $70 Million Third Fund, Promotes Two New Partners

Felicis Ventures has raised a $70 million third fund and promoted two investors to partners, as it builds out its "boutique" early-stage venture firm.

The two new partners are Sundeep Peechu, a former Intel executive who focuses on mobile, enterprise and health, and Renata Streit Quintini, a former institutional investor with Stanford University Management Company who focuses on e-commerce, education and health. They join the firm's founder, Aydin Senkut, a former Google executive.

Aydin Senkut

The firm has been known for its seed investments, having invested in companies such as Mint.com, Milo, Tapulous, and Aardvark, which were all acquired. But Felicis also invests in some companies at a later stage and the new larger fund will enable more of those kinds of deals. For example, Felicis was one of three firms to invest in Angry Birds creator Rovio's first venture round, which was a large $42 million deal in March 2011.

Felicis focuses on five areas: mobile, e-commerce, enterprise, education and healthcare (See infographic below). It also has interests in 3D imaging, bio-informatics and connected devices. Because the firm has been proactively looking to find leaders in those sectors it has been able to find top startups in these areas, Senkut says. In education, Felicis invested in Inkling, and in health it bet on Practice Fusion. In both of those companies, Felicis invested in four separate rounds.

"We pride ourselves on seeing potential there before it becomes hot among other venture capitalists," Senkut says."The theory is simple. People get carried away with the Intsagrams of the world, but there's fundamental disruption in healthcare which is a multi-trillion dollar market and less than 1% of it is spent on IT. Our simple theory has been that that number will go up."

The larger fund will enable the firm to follow on with companies over several later rounds beyond the seed round and also enable the firm to do larger rounds that just seed fundings, such as the Rovio investment. This is a strategy that a number of super angel or seed firms have taken in recent years in order to maintain stakes in fast-growing companies. The larger funding is also an adaptation to the market as some companies raise large rounds in their first round or Series A or skip a seed round entirely. For example, Shopify's first outside funding was a $7 million Series A in 2010, so Felicis invested at that stage.

The firm's last fund just two years ago was a $41 million vehicle and its previous fund was a $4 million fund. Despite the larger fund, Felicis will continue to invest in 12 to 15 companies per year. But with the larger fund, two-thirds of the capital will go to one-third of the "major bets" on certain companies, Quintini says. The firm has major bets on 24 companies and is on the board of half of those.

In total Felicis has invested in more than 80 companies, and has 28 exits. It maintains board roles in about a dozen of those companies. Some of its prominent companies include Rovio, Inkling, Dropcam, Wildfire Interactive, Weebly, Fitbit, Bonobos and Mindsnacks. The total annual revenue of the top one-fourth of its companies is about $800 million (that's likely being generated by a handful of companies).

The new fund was 42% oversubscribed, compared to the last fund, which was 30% oversubscribed. Despite the investor demand, Senkut wants to keep his funds below $100 million and in what it calls a "boutique" category, rather than a full-sized venture firm, he says. "We firmly believe we have a leadership role in the sub-$100 million fund size. We thought this really capitalizes on how our model works. If we push beyond that the model could break."

Felicis brought back all five of its institutional LPs and added three new ones, including a leading endowment and foundation. One new LP that Felicis named is China Internet giant Tencent, which could prove helpful for Felicis portfolio companies. Senkut has worked with the company since 2004 when he was at Google.